OREANDA-NEWS. July 01, 2015. Fitch Ratings has affirmed the underlying rating on the Massachusetts Port Authority's (MassPort) approximately \\$87.7 million special facilities revenue bonds (BosFuel Project), series 2007 at 'A-'. The bonds are payable solely from facilities rent derived from a lease between MassPort and BosFuel, a consortium of member carriers serving at Boston Logan International Airport (Boston Logan). The BosFuel project consists of a consolidated fuel storage and distribution system at the airport to meet the fueling needs of all aircraft operators.

The rating reflects BosFuel's monopolistic position in providing an essential service to airlines at Boston Logan. In addition, the credit benefits from the airport's strong and growing enplanement base which is served by a diversified mix of carriers. These strong characteristics are somewhat offset by the limited nature of the revenue stream which is dependent solely upon carrier rental payments and not the authority's overall general revenue pledge.

KEY RATING DRIVERS

ESSENTIAL AIRPORT SERVICE: BosFuel has an effective monopoly on jet fueling services at Boston Logan airport and is viewed as an essential function to the airlines at the airport.

PROVEN DEMAND AND LIMITED CONCENTRATION: Annual jet fuel sales in excess of 370 million gallons with 94% coming from the twenty one BOSFUEL member carriers. Boston Logan benefits from a diverse mix of domestic and international carriers and has experienced very strong increases in passenger traffic over the past couple of years. Supporting the credit is the lack of significant airline market share of fuel consumption concentration as the largest carrier marginally exceeds 24% of consumption. Still, the bonds mature in 2038 and demand for jet fuel services could decline, and members are able to leave the consortium prior to final maturity.

STRONG STRUCTURAL PROTECTIONS: There is a strong structural framework between the airlines using the fuel system and the fuel system operator, including airline reserve deposits and full step-up payments by the member carriers in cases of defaults or delinquencies from non-performing carriers. The debt service reserve is fully cash funded equal to one year of debt service.

ADEQUATE FACILITIES AND MODERATE COSTS: Fuel storage and distribution assets are adequate to meet projected needs. Net member costs of .0292 cents per gallon in 2014 are marginally higher to peer fuel facilities but have remained mostly stable in recent years. Bond financed projects have been completed and there are only very modest near-term capital expenditure requirements.

NARROW REVENUE STREAM: The special facility bonds do not have recourse to the authority's general revenues or fund balances. Only the BosFuel facilities rental payments paid by airline carriers support the debt obligation.

RATING SENSITIVITIES
Negative:
--Significant deterioration in airport operations leading to a material decline in fuel demand could cause negative rating pressure.
--Carrier defaults or delinquencies in lease payments to BosFuel resulting in a material decline in financial performance could cause negative rating migration.
--Significant leverage for capital needs, without an offsetting revenue increase, could lead to negative rating action if financial metrics materially decline.

Positive:
Given the narrow revenue stream and cash flow sufficient financial profile, the rating is constrained at this time.

SUMMARY OF CREDIT
The project continues to demonstrate stable operations. Fitch views the fuel distribution and storage system to be an essential component of airline operations at Boston Logan airport. The fuel system has been in successful operation for over 10 years and essentially all of the original capital improvements associated with fueling system have been completed with minimal future capital programs anticipated.

Currently, there are more than 20 airline members of BosFuel, accounting for over 90% of estimated total fuel volume at the airport in 2014. Fuel volume through the system is estimated at 371 million gallons in 2014, a 7.1% increase from the prior year. Boston Logan has experienced a 4.5% rise in enplanement growth in fiscal 2014.

Consumption across all operating carriers at Boston Logan is highly diverse with JetBlue serving as the largest user at 24.4% of estimated total gallons pumped in 2014, followed by American/U.S. Airlines at 13.7%, Delta at 11.4%, and United Airlines at 10.4%. JetBlue is also the largest carrier at the airport in fiscal 2014 in terms of enplaned passengers, representing 27% of the total. As was the case in earlier bankruptcy filings of passenger carriers, the project has the ability to draw on member reserve deposits in case of delayed payments or withdrawal that follows a bankruptcy event. Currently, BosFuel retains approximately \\$4.6 million in membership reserve deposits which is equivalent to two months of total facilities charges.

The average cost of BosFuel's operations, excluding terminalling and pipeline costs, is approximately 2.9 cents per gallon. The average cost has been relatively stable in recent years while the fiscal 2015 capital plan indicates some increases to project costs going forward. Specifically, a \\$3.2 million pump pad upgrade is planned for 2016 while total five year capital expenditures are estimates to cost approximately \\$10 million.

BosFuel is a Delaware non-stock membership corporation created for the purpose of operating the fuel distribution system at the airport. MassPort has granted the corporation an exclusive right to provide aircraft fueling services including only the storage and hydrant distribution source of jet fuel for air carriers at Boston Logan. Membership in the corporation is open to all airlines serving the airport upon their acceptance of the interline agreement; however, fueling service is available to all carriers serving Boston Logan on a non-discriminatory basis with non-member airlines paying a higher rate.

BosFuel assesses a net facilities charge on all member carriers equal to its costs of operation, with 90% of the charge based on volume of fuel a particular carrier pumps through the system relative to the total volume of fuel pumped through the system and 10% allocated equally on a per capita charge. While there is not a rate covenant, charges are set to cover all operating expenses and debt service annually. In the event of a default by a member carrier, the interline agreement that governs the consortium includes step-up provisions requiring additional payments from the non-defaulting airlines, in the form of a loan, to assure full and timely lease payments. The Fitch rating case cuts volume that simulates the pull-out of a member carrier. Under this scenario the cost per gallon increases to 3.6 cents in order for net member costs to be fully covered. Fitch believes the adequacy of the legal terms and financial framework of BosFuel has been demonstrated through its performance, with all payments made on a full and timely basis, during the recent spate of bankruptcies in the airline industry.

SECURITY

The series 2007 bonds are secured by a limited revenue stream of facilities rent payments made by Bosfuel under a fuel system lease. BosFuel collects revenues to support the required lease payments primarily from jet fuel to its member passenger and cargo carriers. The bonds are not secured by the general credit of MassPort.